This thought came to me as I was food shopping. So I know there are things that increase the price of certain items (beer, cigarettes, sugar tax – UK) but they also increase with inflation each year like other foods such as bread.
Apparently, the average inflation raise over the last 10 years in the US is 2.37% as of July 2023. So if it is the same in another 10-years, over the space of 20 years inflation would be 4.74%, if we say inflation is the same? And so on and so on. If it continues wouldn’t prices, for say, bread just end up getting higher and higher and be like $10-15+? And as wages don’t rise with inflation the same way foods do fewer and fewer people each decade could afford it?
Now this is just random thoughts I had when shopping and I am not making any comments on any politics. All I wanted to know is, is my thinking true that prices will just go up and up indefinitely decade-on-decade, why or why not? And I am an idiot so imagine I am 5.
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Edit: Went to sleep and woke up to about 300 notifications, thanks for your explanation to a Neanderthal like myself.
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In: 4366
Lots of people have given you good explanations about why small amounts of inflation are necessary, but I’m going to add an additional element most people tend not to think about. Measured inflation works for short term tracking, but tends to begin falling apart after 20-25 years and stops tracking with actual cost.
Let me use a simplistic example: in 1912, a steerage ticket on the Titanic to cross the Atlantic one-way was $35, or £7 in 1912 currency. Adjusted for inflation using just tracked annual changes, that would be $1071. Thing is, £7 in 1912 was equal to 7% of working class ANNUAL wages at the time. So the real cost today would be the equivalent of 7% of median income, or $5,662 in the US, or £2,702.
The equivalent product today (coach ticket on an airline from Heathrow to JFK), costs about $800 on average. It’s also 21x faster.
So, in order to measure inflation over time, to take into account technology, new forms of surplus, superior options, etc, it’s a lot more meaningful to measure median earnings labor hours needed per basic life need. Over the past 100 years, things like food, energy, communication, and travel have become dramatically cheaper. Housing and education have skyrocketed. Healthcare is the toughest to measure because while it costs way more in terms of labor hours today, it’s also insanely better and we can cure a lot of things now that used to kill you.
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